Why Less Choice is More in Health Insurance Exchanges

Many studies have concluded that consumers will be highly price sensitive when they shop on insurance exchanges. In response, insurers have created new products that keep prices down by aggressively limiting the doctors and hospitals where patients can go for care. Not surprisingly, these so-called “narrow” networks have been met with sharp criticism from advocacy groups, reform skeptics, and providers.

Indeed, the healthcare industry has long subscribed to a number of beliefs about what consumers want in networks: that broader is better (witness the rise of PPOs and decline of HMOs over the past decade); that their PCP has to be in-network; and that well-known flagship health systems, such as the Cleveland Clinic, New York Presbyterian, or leading academic medical centers, have to be in-network as well.

However, our research over the past 18 months suggests that this conventional wisdom may no longer be true. Booz & Company researchers surveyed over 20,000 consumers across geographies, risk segments, insurance status (including the uninsured), and income levels. We then employed conjoint analysis (a technique widely using by consumer packaged goods companies such as P&G, but relatively new to healthcare) to understand how consumers went about ranking their choices and making tradeoffs in a simulated exchange environment.

First, we found that consumers don’t necessarily prefer more inclusive hospital networks. Initially, we too thought consumers would favor the broadest networks that offered the most choice. And our early research appeared to confirm that significant price discounts (often as much as 10-15% reduction in premiums) would be required to persuade consumers to purchase a generically described narrow-network product. However, as is the case with political research, we found that it’s all about how you ask the question. When we subsequently surveyed consumers’ preferences for specific networks (using hypothetical bundles of actual hospitals and health systems in their local market), a small network with a high-quality system was far more coveted than other networks with a broader array of choices.

Although this finding will seem surprising to many people in healthcare industry, packaged goods makers and retailers have long known that too much choice can actually inhibit consumers and reduce their satisfaction with their decision. Similarly, consumers worried about receiving care for an unknown illness at some point in the future, find more comfort in knowing they will receive high quality care from a discrete set of facilities than in pondering a sea of options with little expertise in how to make sound decisions.

Second, consumers care more about having a high-quality hospital system than having their own primary care physician (PCP) in their chosen network. In fact, having an in-network PCP is half as important as having a good hospital system in network and represents less than 5% of the value consumers attribute to their health insurance. While a dedicated patient/PCP relationship was once sacrosanct, today’s consumers are increasingly comfortable with getting primary care at retail clinics (e.g., CVS, Walgreens, Walmart, and Target) or using online and tele-health services that are quicker, more convenient, and often more cost-effective than a traditional office visit. Furthermore, as consumers become savvier in their decisions about benefits, even those who truly value their relationship with their PCP quickly recognize that picking up the occasional $150 co-pay to see a PCP who is no longer in-network is a relatively minor trade-off compared to the potential for a five-figure bill at an out-of-network hospital.

Finally, we found that the upper-tier brand of hospitals and health systems widely believed to be required in any network—well-known facilities, academic medical centers, and/or flagship institutions—are not always “must-have” to consumers. While reputation remains an important factor in consumers’ decisions, our research indicates that many safety-net and local hospitals are also well-regarded by consumers — and in particular by those who are currently uninsured. As such, lower-cost, high-value networks designed around these “lower-tier” institutions could be attractive and desirable offerings for consumers.

Taken at face value, these three findings run contrary to the truisms that have governed provider network design for the better part of 30 years. However, when you factor in what consumers really value in healthcare, our research is not surprising. It is simply novel to an industry that is still learning how to adopt a consumer focus. Although the narrow networks that make up today’s first-generation exchange insurance products are largely designed to maintain low premiums, a more significant opportunity exists for network innovation and redesign around the attributes consumers actually value in their providers. Indeed, providers have the opportunity to transform the positioning of narrow networks from a lower-cost solution that limits choice to a tailored offering in which a defined set of hospitals and physicians are seen as a desirable, personalized option.